The long-term sucCESs of the neoclassical growth model

In this paper, we seek to re-establish the link between the constant elasticity of substitution (CES) production function and neoclassical Solow growth theory. We do so in three dimensions. First, we review the increasing importance of the CES technology in modern dynamic macroeconomics, in expandin...

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Bibliographic Details
Published in:Oxford review of economic policy 2007-04, Vol.23 (1), p.94-114
Main Authors: Klump, Rainer, McAdam, Peter, Willman, Alpo
Format: Article
Language:English
Subjects:
Economic growth
Elasticity of substitution
Europe
Growth models
Growth theory
Neoclassical economics
Production functions
Solow model
Solow, Robert M
Supply-side economics
Technological change
U.S.A
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Summary:In this paper, we seek to re-establish the link between the constant elasticity of substitution (CES) production function and neoclassical Solow growth theory. We do so in three dimensions. First, we review the increasing importance of the CES technology in modern dynamic macroeconomics, in expanding not only theory but also in addressing important policy questions. Second, we argue that the importance of the CES function in growth theory is intimately linked to 'normalization'. Finally, we examine the data congruence between CES functions and recent growth patterns in the USA and the euro-area economies, where we apply a supply-side system incorporating a CES function with factor-augmenting and time-varying technical progress. Reprinted by permission of Oxford University Press
ISSN:0266-903X
DOI:10.1093/icb/grm003